What is a full cost method?

The full cost method is the type of accounting used specifically for oil and gas manufacturers-which have the costs of survey within their operating costs. Regardless of whether the survey is successful, the full cost method dictates that all projects are considered capital. After oil or gas is produced by a successful survey, then any related costs are amortized by production profit and the amount is finally considered to be costs. If this is used instead of other accounting methods used with oil and gas survey, net income usually looks higher. These fees are associated with obtaining equipment, securing land for drilling or mine, cost of using machines and hiring operators, and any other fees for obtaining oil or gas. Regardless of the amount of money used by companies for a survey, it may be unsuccessful in the output that brings small or no oil or gas. This is not so with the full cost method. With this accounting method are successful and unsuccessfulSurveys written as capital. Other accounting methods include only capitalization for successful projects, which reduces the total amount of capitalization funds.

When the expenditure is capitalized, they will not forget. It is rare that the company has a long range of unsuccessful projects that do not bring oil or gas, and when a successful survey is successful, they are with capitalized solutions. After the yield is created and sold to other entities, the profit is used for capitalized expenditure from the full cost method. Capitalized costs change to normal costs due to amortization.

Using a complete load method is perfectly legal and ethical in most areas, but has the potential to change the company's net income due to various reports used by this type of accounting. Compared to other accounting methods used for the costs of oil and gas exploration causes the full cost methodo provides a higher net income and inflates the company. This usually attracts investors who note that society earns more, although the company can actually produce less than its competitors. The fact that this may happen means that investors should normally check the accounting method that the company used before the decision to make the best investment.